Lithuania Grapples With Rising Inflation

Experts warn true cost increases may be masked by official figures

Lithuania is experiencing noticeable inflation, prompting economists to examine the real impact on consumers. While official figures indicate a moderate rise, some analysts suggest the actual decrease in purchasing power could be significantly higher, affecting Lithuanians more than statistics reveal.

Inflation Rate Exceeds Target

In May 2025, Lithuanian prices increased by 3% compared to the previous year, and 0.3% compared to April, according to recent data. Economists typically become concerned when annual price increases surpass 2%. The current increases are considered relatively slow compared to the height of the pandemic.

Money Supply and Price Increases

According to a Bigbank press release, rising prices decrease the purchasing power of money. However, official inflation indicators might not fully reflect the true decrease. Typically, economic growth necessitates a proportional increase in the money supply. **Raul Eamest**, Bigbank Chief Economist, stated that a 2% economic growth should be matched by a 2% increase in the money supply.

“If the supply of money is growing more, it leads to price increases – excessive ‘money printing’ always leads to inflation,” said **Eamest**.

He added that Europe’s money supply began increasing after the last financial crisis, gaining momentum in 2015. From 2010 to 2021, the European Union’s GDP increased by EUR 3.7 trillion, while the money supply increased by EUR 6.4 trillion. According to Trading Economics, the M3 money supply in the Euro Area increased to EUR 16.28 trillion in April 2024 Trading Economics.

The economy grew nominally by 33%, but the money supply increased by 420%, according to a bank spokesman.

Consumer Price Index (CPI) Limitations

The Consumer Price Index (CPI) measures inflation by tracking how much consumers spend on goods and services. According to the specialist, prices should have increased several times, theoretically. However, CPI evaluations in the European Union from 2010 to 2021 showed inflation at only 19%. Similarly, the US market saw a 227% increase in money supply (5 trillion euros), but the CPI rose by only 28%.

The CPI excludes important components like precious metals and cryptocurrencies, which have seen significant price increases. Lithuanians are also investing more in US shares, which are becoming more expensive. These factors aren’t included in the CPI because they are not part of the average consumer basket.

Personal Inflation vs. Official Data

Consumers may experience inflation differently than what statistics suggest, due to personal inflation. The Bank of Lithuania even provides a personal inflation calculator. Personal inflation reflects how price changes affect individuals, unlike the averages used by central banks.

Personal inflation is influenced by individual habits and expenses. For example, those renting in cities with rapidly rising housing prices will experience higher personal inflation. Conversely, those who do not drive may feel less impact from rising fuel prices.

Economist also reminds that even if inflation is reduced, prices do not fall, but only stop growing rapidly, so even when inflation drops, a significant increase in prices may still be felt for a while.

Future Inflation Trends

Economists anticipate continued inflation, suggesting that only increased unemployment and economic contraction could reduce purchasing power and consumption. As long as the labor market remains strong, the effects of past money printing will persist, making a decline in rapid inflation unlikely for the next 5 to 10 years.

Inflation may also be driven by potential US tariffs on European goods and increased defense spending. Shares in defense companies have risen significantly, with the Vaneck Defense ETF increasing by 50% this year alone. European defense companies like Rheinmetall, Thales, and Bae Systems have seen even more pronounced growth.

**Rolandas Norvilas**, Bigbank CEO, acknowledged the inevitability of inflation, noting, “We are definitely seeing increased prices in stores. However, inflation can use inflation in various asset classes, and saving more cautiously can at least neutralize inflation.”